Key Business Points
- Fiscal discipline is crucial for Malawi’s economy, as excessive borrowing can suffocate the economy and mortgage the country’s future, according to economists.
- The government’s borrowing plan should be stuck to, to minimize the risk of negatively affecting the target to reduce the fiscal deficit, which is projected at 9.5 percent of the country’s gross domestic product (GDP).
- Private sector credit opportunities are being crowded out due to high domestic public debt, which pushes up interest rates and motivates banks to lend more to the government, hindering economic growth.
Malawi’s economy is at a critical juncture, with economists warning that excessive borrowing can have severe consequences. The Reserve Bank of Malawi (RBM) data shows that the government has borrowed K2.19 trillion on the domestic market in the first five months of the fiscal year, representing 94 percent of the planned K2.33 trillion borrowing. This surge in borrowing, particularly prior to the September 16 General Election, has raised concerns among economists. Bertha Phiri, executive director of the Malawi Economic Justice Network, emphasized the need for fiscal prudence, stating that "Malawi needs the dismantling of such a debt acquaintance system and policies demand fiscal prudence."
The situation is further complicated by the fact that future production efforts will be mainly filling the gap created by the current borrowing, which is a burden to future generations. As Gowokani Chijere Chirwa, associate professor of economics at the University of Malawi, noted, "This is a very bad situation because it has already ‘eaten our future’ income, which we may generate because that means we will be producing just for others since we will be forced to repay this." This highlights the need for the government to adhere to the borrowing plan, as urged by finance expert Brian Kampanje, to avoid extra expenditures outside the budget.
The elevated domestic public debt also pushes up interest rates, which is not conducive for the private sector. As Kampanje explained, "This is not good for economic growth as the private sector has fewer credit opportunities for both capital expenditure and daily operations." This crowding out effect can have severe consequences for local entrepreneurs and businesses, making it essential for the government to prioritize private sector development. In Chichewa, this is often referred to as ukongwe, emphasizing the need for economic growth and development.
The current situation underscores the challenges the government is facing to effectively fulfill its mandate. As Economics Association of Malawi president Bertha Bangara-Chikadza noted, the continued budget deficit is a concern, and the government’s fiscal pressure mainly heightens in the coming quarters of the economic lean period. The Ministry of Finance and Economic Affairs data shows that Malawi’s total public debt stock was K16.19 trillion or 86.4 percent projected GDP, with external debt stock recorded at $4.27 billion (about K7.4 trillion) while domestic debt was recorded at $5 billion (about K8.79 trillion). This highlights the need for zinthu zophweka, or fiscal responsibility, to ensure that the government’s mkhwirilira, or borrowing, does not jeopardize the country’s economic future.
In the 2025/26 K8.05 trillion National Budget, the Malawi Government is expected to close the fiscal year on March 31 2026 with a fiscal deficit of K2.47 trillion or 9.5 percent of GDP, which will be primarily financed through domestic borrowing amounting to K2.33 trillion and foreign borrowing of K145.78 billion. As the government navigates these challenging economic times, it is essential to prioritize mpango wa chipsa, or a comprehensive plan, to ensure that the country’s economy is wokongola, or growing, and that the private sector has access to nkhalango, or credit opportunities, to drive growth and development.
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